Wednesday, October 24, 2012

A look inside Somaliland’s vital money transfer system

- Years ago, as a student working a summer job in Moscow, I came to the stark realization that I didn’t have enough money in my account to move into my summer digs. With no small amount of embarrassment, I called home to my parents and asked if they would send cash to help me cover my security deposit and initial rent payment until I received my first paycheck. Sure enough, the next day I found cash waiting for me in my bank account.

I forgot this entire experience until I travelled to Hargeisa, a city in Somaliland that might be appropriately called the remittance capital of the world. Of course, Somalilanders don’t receive money transfers just to cover a month’s rent until the next paycheck comes in. For many families, money transfers are the next paycheck.

Somalis in Minneapolis, London, Nairobi, Dubai, and all over the world send money to their relatives, friends and their broader kin in Somaliland, and in Somalia, to cover everything from basic needs like food and shelter to investments in small businesses.

The Somaliland Ministry of Planning and Development estimates that remittances reach more than 40 percent of Somaliland households and account for a staggering 25 percent of its gross domestic product. In South and Central Somalia, where drought, armed conflict and human rights abuses have created arguably the world’s worst humanitarian crisis, the numbers may be even higher.

That’s why “Fast Money Transfer You Can Trust,” the slogan of the Hargeisa-based money transfer company Dahabshiil, is more common on billboards than “Just Do It” or even the classic “Always Coca-Cola.”

And it’s why everyone I talked to in Hargeisa – women’s groups, government officials, youth leaders and others – made clear that remittances are nothing less than a lifeline to the Somali people.

In December, 2011, in the midst of this century’s worst famine, that lifeline was nearly cut off when a key bank in the United States decided to stop doing business with the Somali money transfer companies.

On my first day in Somaliland, I travelled to the operations centre of Dahabshiil. It now occupies two older buildings, but it’s scheduled to relocate to a new building, which, when completed, will be the biggest in all of Somaliland. I asked Abdirashid Duale, Dahabshiil’s CEO, what most threatened the free flow of remittances from the US to Somalia. Without hesitation, he replied, “Banks, banks, banks.”

Traditional Islamic money service businesses like Dahabshiil have agents to collect and distribute money transfers, but they can’t actually send money from the US to Somalia themselves – they need banks to do that. But US law requires banks to devote a ton of resources to monitoring the transactions and to subject themselves to additional government scrutiny.

As a result, only a few small banks still work with the Somali money transfer companies. And those banks could decide at any moment to discontinue service – even if the companies go above and beyond their legal obligations.

Many Somali-Americans are scared and frustrated, and I can understand why. Imagine tightening your belt so you can set aside a few extra dollars for your kin threatened by famine and conflict, while knowing in the back of your mind that a bank can shut down the transfer service at a moment’s notice.

It’s no wonder the Somali-American community in the Twin Cities in Minnesota has organized town hall meetings, protests, and boycotts this year in order to force banks and government officials to find a way to keep remittances flowing.

All of this trouble is not necessarily the fault of the banks, though. US law asks them to monitor and regulate systems they may not fully understand and which are widely believed in the industry, rightly or wrongly, to be insecure and risky.

For my part, I didn’t fully understand them either. So I decided to see for myself how Somalis receive money from abroad – and how Somali money transfer companies guard against money laundering and fraud.

My good friend Kate, always up for an adventure, agreed to send me $60 from Minneapolis. She presented her driver’s license and phone number, together with my passport number and Somaliland cell phone number, and paid $63 (including $3 commission). Fifteen minutes later and nearly 8,000 miles away, I received a text message on my cell phone: “You have a message from Dahabshiil.”

To millions of Somali families, messages from money transfer companies like this one means the support they need to survive has finally arrived. To me, it meant a window into a poorly understood facet of Somali life was beginning to open.

I was in Somaliland during Ramadan, the month of fasting and reflection in Islam, Muslims are expected to send gifts to their loved ones and increase their charitable giving. Knowing that a $60 transfer had arrived for me I took my place behind a long procession of Somalilanders eager to collect funds that their relatives, friends and broader kin had sent from other countries. I’m certain it was the same all over Somalia – people were waiting on line to collect money they desperately need to get by.

Earlier in the day, staffers at the Dahabshiil branch had kindly given me a tour of the company’s compliance practices. Dahabshiil puts every US-Somalia money transfer through two rounds of vetting– one automatically when their agents collect the money and one by the compliance department before payment is issued – to make sure it doesn’t violate US counterterror laws.

The branch office’s anti-money laundering officer usually only does a third check on what the US calls “suspicious transactions,” transfers of more than $10,000. But to help me understand the system better, the branch officer ran my $60 through that anti-money laundering check, too.

After the remittance clerk made a copy of my passport and took down my information, I was finally ready… to sign the paperwork, collect a voucher and wait in another long line of restless Somalilanders. But it didn’t take long for me to present my voucher and collect my money.

Oxfam is committed to helping Somalis find a way out of the current humanitarian emergency and build a secure and prosperous future. So we’re studying the US laws on money laundering and trying to figure out whether Dahabshiil or the other dozen or so other Somali money transfer companies can do anything to put themselves on stronger footing to ensure they can continue the service.

Abdirashid Duale, the Dahabshiil CEO, is convinced they’ve done everything that’s required of them and more. And we’re looking at what banks and the government can do to better facilitate the Somali remittance system without compromising their efforts to weed out money laundering.

No matter what conclusions we reach, from my experience two things are clear. First, the perception of all Islamic money service businesses in Somalia as insecure, informal, and uncommitted to compliance with US law needs to be thoroughly re-examined.

Second, any interruption in the flow of remittances to Somalia would abruptly sever a critical lifeline to the Somali people, who have suffered through a humanitarian crisis for 20 years and counting.

Such a cruel turn of fate would be unfair for any country, let alone one that has weathered so much hardship for so long.